January 2020 Economic Update

 Time is not arbitrary.

 Time does not really care that we have constructed a narrative around December 31st and ten-year, hundred-year and thousand-year spans.

 It just keeps moving forward.

 We woke up January 1st, 2020 with an invigorated hope that a new decade would bring new opportunities… “new year; new me” mentality. But time doesn’t care about that, time moves ahead, and we stop, we look around, and we stop paying attention to time.

 It has only taken three weeks to uncover the latest threat to our economies, on a large scale, and we will attempt to stop time.

The threat is the Wuhan Corona Virus (Novel Coronavirus) a new strain of respiratory illness the WHO, CDC and most global health organizations are still trying to wrap their heads around. There is a lot that is known, but at this time a lot that is not known and at the moment both the known and unknown variables are causing market volatility.

 This is nothing new, you may recall the SARS outbreak of the early to mid-’00s, this caused some market volatility for a short time, but also caused a mass panic. The same goes for the H1N1 Flu strain (Swine Flu) of 2009, which caused a global panic for a short period, then everyone remembered how easy it is to get a flu shot and wash your hands, so the market shakeup was short-lived and as it does, time moved ahead and we with it.

 We believe there may be a fundamental difference in the “now” as we are not dealing with a known entity, and we are dealing with fundamental market flaws drawn from trade disputes that already have markets jittery, and massive quarantines in Asia that could slow growth in the entire region for some time. We may already be seeing the effects of this now.

 Time will march ahead though, for better or worse.

 So we have to look ahead and try to navigate, nearly blind, into the future.

 Regardless of the global health situation, both literally and figuratively, we would be moving ahead blindly as we are still in the midst of the longest market expansion in global history. This shouldn’t be anything new to anyone reading this who has interacted with us in the last 12 months, as we are consistently mentioning the idea that every day is a new day that will bring new challenges and new opportunities.

 With that in mind, I would like to speak about the final quarter of 2019 and what we did to prepare for the coming months and years.

 Near the tail end of last year, as we did a the end of 2018, we were offered some new opportunities from Industrial Alliance Group (IAG) that we felt could help us diversify the portfolios we manage into new asset classes we previously lacked for one reason or another, help us shore up our existing positions, creating efficiencies as well as helping rid us of duplicate purchases. Let’s be honest, we don’t need more Apple or Nike stock than we already have.

 How we have accomplished this goal is to actually take the profits we made last year ~20%+ in nearly every portfolio we manage and reinvest that profit into Infrastructure on a globalized basis as well as into a very convicted US dividend portfolio.

 The issue we have from a high up in the sky Macro perspective is that we have a lot of American exposure, and while, at least at the moment, we do not have a problem with this exposure, down the line we may. So to remedy this we want to slowly divest some of our American exposure by, simply put, squeezing this part of the portfolio slowly over time and diversifying the capital that is pushed through our fingers into other asset classes or regions of the world.

 For instance, we believe that at some point in the future the overall Eurozone will be a good region to place capital. Nearly 750,000,000 people are spending money, every day, there will be value found in Europe in the future. Perhaps we should be focused more on the Emerging Markets as the USD eventually weakens against other global currencies. We can do this over time by steadily moving capital and finding long term positions elsewhere.

 By no means does this mean we are abandoning the largest economy in the world because we think a recession is imminent, but rather that we know the portfolio is overexposed and it is our duty to relieve that risk over time.

Let me be even more clear:
 “A person is smart. People are stupid.”
— Agent K, Men in Black

The recent threat of this new semi-virulent strain of Coronavirus has put people into a panic. The markets are already quite jittery due to numerous factors and the current POTUS will consistently point to the markets while simultaneously causing volatility with remarks and policy. The last thing the world needed is this threat of contagion. The good news is, likely every global and regional health organization is working on this ‘round the clock to help ease the spread of the disease and learn as much as possible every waking moment using “appropriate quarantines in the face of a previously unknown organism, regardless of the actual threat that may or may not come from this” —Dr. Jennifer Bruce, MD FRCPC IM/CCM

 Until the global news cycle stops mentioning this issue, “people” will continue to panic, the mob itself, out of fear of the unknown, will panic and give us an opportunity to continue to add to the profits we have made long term, as well as in the last 12 months.

 We believe that this year will be a good year when considering the global equities markets, we also know there will be a lot of noise that comes from the upcoming US elections. So, as we prepare for that noise and various other factors, we would urge any of you who haven’t seen us since September 1st that now would be a good time to come in an review, chat about RRSP and TFSA deposits and get a good idea of our future plans.

 Seems imminent that we will see a good buying opportunity, let’s take advantage of it.

 Time will march on…
 
It is always good to see and chat with you all.

Oh, and Happy New Year!

 Darris Cameron
 President & COO
 Financial Value Inc.